ED Issues Final Rules on 90/10 Rule, Prison Education Programs, and Change in Ownership

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

The Department of Education (ED) on Thursday announced final rules for the 90/10 rule for for-profit colleges, Pell Grant Eligibility for Prison Education Programs (PEP), and procedures for institutions undergoing changes in ownership.

The rules, which will take effect July 1, 2023, were published in the Federal Register on Friday.

"These new rules crack down on some of the most deceptive practices we see in higher education, such as predatory marketing tactics that target U.S. service members and veterans, and changes in ownership designed to evade accountability to taxpayers,” said Education Secretary Miguel Cardona, in a press release. “I'm also proud that starting July 1, 2023, incarcerated students will have access to federal Pell Grants to enroll in high-quality prison education programs that we know reduce their risk of returning to prison and prepare these individuals to lead productive and meaningful lives in their communities."

The new rules were shaped during a pair of negotiated rulemaking committees that met over the last year and follow’s ED’s proposed regulations that were announced in July. During those sessions, the committee reached consensus on 90/10 and the PEP topics, but did not come to consensus on the change of ownership paper.

The proposed regulations reflected consensus language for the topics on which the committee reached consensus. However, the final rules may take into account changes based on the public comment received in response to the proposed rules.

ED’s final rule would implement statutory changes for the 90/10 rule and identify which federal funds can no longer be counted toward the 10% revenue requirement and also addresses potential loopholes that schools can use to manipulate the timing of when they receive revenue.

According to ED, these regulations will apply to institutional fiscal years beginning on or after Jan. 1, 2023.

ED clarified its treatment of income-share Agreements (ISAs) in the 90/10 calculation, noting that the total amount a student pays back to the institution under an ISA is not the amount the institution would count in its 90/10 calculation. Rather, institutions are expected to determine the amount repaid by the student that is attributable to profit and the portion that is attributable to return of capital and, of the amount that is attributed to return of capital, only those funds that were applied toward tuition, fees and other institutional charges are considered non-federal revenue in the 90/10 calculation.

ED also removed the proposed limit on the interest rate that ISAs can assess if they are included in an institution’s 90/10 calculation in response to commenters who argued that because of how ISAs are structured, that rate will vary by student as well as for individual students as their incomes fluctuate.

For Prison Education Programs, the final rule sets standards for public and private nonprofit institutions to implement effective prison education programs that can “provide incarcerated individuals with the education they need to pursue a second chance at life inside and outside of prison.”

In the final rule, ED clarified language to address a concern raised by NASFAA with respect to issuing waivers to permit institutions to exceed the 25% cap on enrolled students who are incarcerated. Original language described an initial waiver to allow 50% incarcerated student enrollment for five years which could be followed by a subsequent five-year waiver to permit 75% incarcerated students, but did not specify what would happen after the second five-year period. ED clarifies in the final rule that the 75% cap would stay in place unless revoked, and would be reviewed at each recertification.

ED also made changes to how oversight entities determine that a PEP is operating in the best interests of its students. Based on commenters’ concerns, ED changed outcomes indicators, such as job placement rates and program-level earnings, to optional versus mandatory metrics for PEPs to factor into their determination of best interests.

The rule also clarifies ED’s authority to terminate or revoke a PEP’s eligibility to participate in the Pell Grant program when an institution violates the terms of the newly-established Subpart P, adding that such decisions would be undertaken on a case-by-case basis and would include consideration of materiality of violations.

During the negotiated rulemaking session, the committee did not reach consensus on the change of ownership issue paper. In the final rule, ED is seeking to clarify the requirements and processes institutions must follow for changes in ownership, and made some changes from the proposed rule issued in July.

In response to issues NASFAA raised in earlier comments, ED amended language in its revised definitions of additional location and branch campus to specify that these are geographically separate from the main campus.

ED also responded to public comments about its proposed new requirement that distance education programs be offered and approved from the institution's main campus. While negotiators raised concerns this past spring, ED proceeded with its own language in the absence of consensus. However, ED indicated that it was persuaded by comments, which included concerns about implications for state aid eligibility and licensure requirements, and removed the requirement from the final rule.

According to ED, the new regulations would update the definition of a nonprofit institution, require institutions undergoing a change in ownership to notify both ED and the institution's students at least 90 days prior to the change, and may also require institutions undergoing a change in ownership to provide additional financial protection or to comply with additional conditions to protect against the risk of the transaction.


Publication Date: 10/28/2022

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